Barclays on U.S. Consumer Finance: Refi Proposal Seems Likely, But Impact Should to Be More Limited than Thought
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Rating Summary:
4 Buy, 20 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Barclays on U.S. Consumer Finance: Refi Proposal Seems Likely, But Impact Should to Be More Limited than Thought by Mark C. DeVries
DeVries said, "We Believe Sell-off of Mortgage REITs on Overdone Concerns Has Created a Buying Opportunity, Especially for REITs with Large Non-Agency Holdings: Recent reports that the Obama administration is considering a proposal that would allow millions of homeowners with Agency mortgages to refi have contributed to a sharp sell-off in the shares of all residential mortgage REITs (down 4.4% over the last two trading days vs. a 0.3% decline in the S&P 500) on what we believe is an overestimation by the market of such a proposal on refinance activity. Given the tenuous state of the U.S. housing market, the economy, and the President's approval rating, we believe a plan to stimulate additional refinance activity is highly likely; however, we believe the type of plan that emerges will be burdened with the same implementation challenges of past government efforts to stimulate refinance activity, so we do not expect a large refi wave that materially affects book values and earnings. While we would be buyers of all of the REITs on additional weakness, in the near term, we would favor the REITs with more non-Agency exposure (Two Harbors Investment Corp (NYSE: TWO), Chimera Investment Corp (NYSE: CIM), Invesco Mortgage Capital (NYSE: IVR)), which have sold-off about as much as Agency REITs even though any likely refi plan would be focused exclusively on Agency mortgages."
DeVries said, "We Believe Sell-off of Mortgage REITs on Overdone Concerns Has Created a Buying Opportunity, Especially for REITs with Large Non-Agency Holdings: Recent reports that the Obama administration is considering a proposal that would allow millions of homeowners with Agency mortgages to refi have contributed to a sharp sell-off in the shares of all residential mortgage REITs (down 4.4% over the last two trading days vs. a 0.3% decline in the S&P 500) on what we believe is an overestimation by the market of such a proposal on refinance activity. Given the tenuous state of the U.S. housing market, the economy, and the President's approval rating, we believe a plan to stimulate additional refinance activity is highly likely; however, we believe the type of plan that emerges will be burdened with the same implementation challenges of past government efforts to stimulate refinance activity, so we do not expect a large refi wave that materially affects book values and earnings. While we would be buyers of all of the REITs on additional weakness, in the near term, we would favor the REITs with more non-Agency exposure (Two Harbors Investment Corp (NYSE: TWO), Chimera Investment Corp (NYSE: CIM), Invesco Mortgage Capital (NYSE: IVR)), which have sold-off about as much as Agency REITs even though any likely refi plan would be focused exclusively on Agency mortgages."
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